100 claims management firms closed in crackdown

The Ministry of Justice has shut down 100 claims management companies as part of a crackdown on firms in the sector that mislead the public, it has emerged.

The MoJ said the companies were making misleading claims that debts could be written off because they were unenforceable, as well as using high pressure sales techniques and cold-calling in person.

In other cases, claims management companies, including personal injury firms, ignored requests for information from the regulator, used persistently misleading marketing or were run by people who had convictions for fraud.

As a result of these breaches of the claims regulation conduct rules, the MoJ said it had cancelled the authorisation of 100 companies since April 2007.

The rules state that firms must not cold-call in person or engage in any form of high pressure selling, while they must also give written information on how to pursue a claim, allow a cooling off period of at least 14 days and operate a customer complaints scheme.

Many of the firms banned were offering to help consumers get their debts written off, claiming they were unenforceable.

Some firms used misleading advertising, claiming credit card debt could be written off within six weeks, or saying that 80% of credit agreements were unenforceable.

The MoJ found that people often had to pay large up-front fees to the companies for a service that did not live up to the marketing hype, leaving people with debt-related claims still liable to repay all of the money they owed.

Kevin Rousell, head of regulation at the Ministry of Justice, said: "The majority of claims management companies registered with the Ministry of Justice are operating within the rules.

"However, some companies choose to flout those rules and some also target consumers who find themselves in debt.

"People desperate for a way out of their financial troubles can be vulnerable to the misleading marketing that the Ministry of Justice Claims Management Regulator is continuing to tackle."

He added: "There has also been a trend towards high pressure cold calling from call centres, including making unsubstantiated claims and encouraging people into handing over fees there and then - a decision they regret later."

He said it was important that consumers were able to make fully informed decisions about whether to use the services of a firm that had approached them, and they must be given clear information about the options available for pursuing their claim, realistic chances of success and the costs involved.

The MoJ urged consumers approached by a claims management firm not to be pressurised into making on-the-spot decisions but to take time to consider their options.

It also advised people not to hand over any money until they had got written information from the business on the service it was offering, how much it would cost and when they would have to pay.